What is a finance lease?

A finance lease is a type of commercial lease in which the legal owner of the asset — in this case, a tractor — rents the asset to the user of the tractor for an agreed-upon period. When a lessee enters into this agreement, they have full operating control of the asset. They will have responsibility and assume the risks and rewards that come with owning the asset. For accounting purposes, the lease gives the lessee the same economic characteristics as if they had full ownership of the tractor. The lessee will record the asset as a fixed asset on their balance sheet. In this situation, the lessee will record the interest of the lease payment as an expense. The lesser charges rent in exchange for lending the asset. The lessor retains ownership of the asset but the lessee gains exclusive use of the asset (providing they abide by the terms of the lease). The lessee is obliged to make rental payments that cover the original cost of the asset. There is an obligation to pay all of the fixed rental amounts, sometimes including a percentage of the purchase price of the vehicle at the end of the contract.

What is an operating lease?

An operating lease in contrast is the simplest form of equipment leasing, where the customer doesn't take on the risks and rewards that come with owning the asset (such as maintenance costs). An operating lease or contract hire is a way of renting an asset for your business over a short or medium time frame without taking on any risk. With an operating lease, you can get a tractor hire over a fixed term, with lower monthly payments and without the commitment of ownership.

Management Buyout (MBO)

If you’re part of an internal management team looking to finance a Management Buyout, you’ve come to the right place. A range of business finance options are available to facilitate the sale and purchase of the company you’re acquiring.

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What is a Management Buyout?

A Management Buyout is when a company’s existing management team purchases all (or part of) a company they manage. It can be an attractive option to the seller because the management team already understands how the business operates, so is well-placed to ensure its continued success and growth.

How does a Management Buyout work?

Although you may be expected to make a financial contribution to the purchase of the company out of your own pocket, it’s likely that a third party funder will contribute the majority of the finance for the Management Buyout. Finance options include:

Asset finance – you can release cash from the assets the company owns (such as property or stocks) and use it to fund your purchase.

Term loans – alternative lenders can provide a cash flow term loan for up to 5 years to help fund your MBO. Receive a sum and pay it back in instalments with interest.

Mezzanine finance – mezzanine finance enables you to “bridge the gap” between the funds you’ve raised and the company’s purchase price.

Management Buyout - Features and benefits through Funding Options

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Representative example*

7.63% APR Representative based on a loan of £50,000 repayable over 24 months. Monthly repayment of £2,252.94. The total amount payable is £54,070.56

*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.

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Disclaimer: Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. We are also able to make insurance introductions. Funding Options will receive a commission or finder’s fee for effecting such finance and insurance introductions.

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